Time (TIME) is a fresh trading vehicle having been spun from Time Warner in June of this year. They were able to produce a solid beat in their first public report, but analysts have had a hard time getting their arms around earnings estimates for the stock. A big swing lower in estimates has made this stock a Zacks Rank #5 (Strong Sell), and it is the Bear of the Day.
Company Description
Time Inc. publishes magazines in the United States, the United Kingdom, and internationally. It publishes 23 magazines such as People, Sports Illustrated, InStyle, Time, Real Simple, Southern Living, Entertainment Weekly, and Fortune. The company was founded in 1922 and is headquartered in New York, New York. It operates independent of Time Warner as of June 6 of this year.
Earnings History
There has been only one earnings report so far for TIME. It was a beat, but actually is a thrashing of the Zacks Consensus Estimate. The company reported $0.30 when we were looking for $0.07. The $0.23 beat translates into a 328% positive earnings surprise. The topline, however, came in $3M light for a -1.86% negative revenue surprise. The stock fell by 2,7% in the session following the report.
Estimates Slide
shortly after the IPO, the estimates for TIME were adjusted up in a big way. The Zacks Consensus Estimate for 2014 moved from $0.82 in July to $1.82 in August. Problem is that the next month saw those same estimates fall by a dime. We currently stand at $1.72 for 2014.
The 2015 number saw a jump from $1.29 to $1.66 when the 2014 number increased by an even dollar. It too slid lower, but by even more to $1.52.
The larger decrease in next year's estimates was a major factor in this stock moving to a Zacks Rank #5 (Strong Sell). The fact that there is a negative implied earnings growth rate does not impact the rank.
Valuation
There is limited data for this still fresh company. There is no trailing PE, so the rather large 35x industry average looms ominously. The forward PE of 13x for TIME is priced at a discount to the 15.2x industry average. The price to book multiple for the magazine company stands at 0.9x compared to a 3.1x industry average. This should make some value players wake up as this multiple is saying that all the assets the company holds are worth more than the stock is trading at. Other multiples like price to sales and a margin analysis are not available on the Zacks Research System at this time.
The key idea here is that analysts need to get a better handle on the estimates. A few more quarters of information will give them more perspective, but until that time, TIME is likely to be much more of a speculative stock. Earnings that are move lower over time are usually very big warning signs, so investors would be wise to wait until they see the story turn around.